The ISIF has a statutory mandate to invest on a commercial basis in a manner designed to support economic activity and employment in the State.

Investing in Ireland

Significant Economic Impact

In December 2014, the assets of the National Pensions Reserve Fund (NPRF) transferred to the Ireland Strategic Investment Fund (ISIF). The ISIF has a unique “double bottom line” mandate to invest on a commercial basis in a manner designed to support economic activity and employment in Ireland. The NPRF Discretionary Portfolio was made available to the ISIF to enable it to make investments that meet this mandate. The Directed Portfolio (primarily public policy investments in AIB and Bank of Ireland) continues to be managed within the ISIF under direction from the Minister for Finance.

The ISIF’s double bottom line mandate makes it one of the few sovereign wealth funds globally with a mandate to contribute to economic activity and employment, in addition to delivering commercial returns. The ISIF is required to seek to generate a return over the long term in excess of the cost of Irish Government debt and has set a medium-term performance objective of 4% per annum.

In seeking to contribute to economic activity and employment, the ISIF’s investment focus is on additionality, or investments which build the productive capacity of the Irish economy. The ISIF’s unique characteristics – scale, flexibility across the capital structure and long-term investment horizon – mean that it can target such investments in a way that many other investors and financiers cannot. Conversely, the ISIF in its Investment Strategy seeks to avoid deadweight (crowding out willing private sector investment) and displacement (enterprises whose success comes at the expense of others within the Irish economy).

At end-2017, the value of the ISIF Discretionary Portfolio was €8.7bn and the value of the Directed Portfolio was €11.8bn.

DISCRETIONARY PORTFOLIO

Investment Strategy

In May 2015, the NTMA Board approved the ISIF Investment Strategy, following consultation with the Minister for Finance and the Minister for Public Expenditure and Reform.

The ISIF Investment Strategy entails investment across nine investment buckets which can be grouped under three strategic drivers:

While the ISIF’s direct investment volumes to date are broadly as anticipated in the Investment Strategy, it has attracted higher levels of co-investment from the private sector than envisaged and, as a result, a higher total investment commitment for ISIF-backed companies and projects. The ISIF has attracted €1.7m in private sector co-investment for every €1m invested by the ISIF, compared with an initial projection of €1m for every €1m invested.

Since its inception in late 2014, the ISIF has witnessed a significant improvement in the Irish economy and in Irish investment markets, and, consequently, a materially altered environment for investment. However, it is apparent that capital gaps still remain in critical sectors of the economy, including higher-risk capital previously provided by banks and, more generally, opportunities persist for long-term equity oriented patient capital that is needed to scale and grow businesses and markets.

It was expected that the initial ISIF Investment Strategy would change over time and that flexibility and adaptability would be critical elements of its business model. To that end, when the initial ISIF Investment Strategy was finalised in mid-2015, it was agreed that a formal review of the Strategy would take place after eighteen months and that this would include consultation with the Minister for Finance and the Minister for Public Expenditure and Reform. This review is well advanced and is expected to be concluded shortly. As part of this review, the Government announced in Budget 2018 the establishment of a Rainy Day Fund and Home Building Finance Ireland, both of which will be funded initially from ISIF resources.

Investment Performance

The total Discretionary Portfolio value has grown since inception from €7.1bn to €8.7bn, comprised of investment gains of €674m and cash injections of €865m (AIB dividends €530m and the sale of the State’s shareholding in Aer Lingus €335m).

In 2017, the ISIF generated an investment return of 4.3%, made up of 4.5% on the Irish Portfolio and 4.1% on the Global Portfolio (the Global Portfolio holds Discretionary Portfolio assets which have not yet been invested in Ireland). The Irish Portfolio benefited principally from the strong performance of its venture capital fund investments and by solid returns from infrastructure, energy and SME investments. The focus of the Global Portfolio is to ensure cash is available to fund Irish investment commitments as they materialise. Its performance was driven by its equity and absolute return investments while its significant cash and fixed income investments generated extremely low returns, in line with market conditions.

Since inception, the ISIF has generated an annualised return of 2.8% per annum, comprising a return of 7.0% per annum from the Irish Portfolio and a return of 2.2% per annum from the Global Portfolio.

Irish Portfolio

Including investments made by its predecessor (the NPRF), the ISIF had by end-2017 committed €3.3bn to investments consistent with its investment mandate. Including third party co-investor commitments, a total of €9.1bn had been committed to investment in Ireland.

The ISIF portfolio is diversified across all regions and many sectors of the economy and includes investments in infrastructure, energy, housing, commercial real estate, SMEs, dairy, forestry, technology, life sciences, education and international financial services.

ISIF Commitments to Ireland 2014-2017

Total Investment Committed in Ireland

Figures may not total due to rounding.

Of the €3.3bn committed to Ireland, €2.2bn had been drawn down at end-2017, with a market value at that date (after some income distributions) of €2.2bn.

€667m was committed by the ISIF to 23 separate investments during 2017 (average investment size of €29m).

ISIF IRISH INVESTMENTS 2017

1.   *Additional commitment to an existing ISIF investment.
2.   Figures may not total due to rounding.

Economic Impact

The ISIF seeks to allocate the majority of its capital to priority sectors and investments where the highest economic impacts are likely, while also ensuring that all investments satisfy its commercial return objectives.

The economic impact and employment supported by ISIF investment differs from traditional Government expenditure. With investment, public resources are expected to be returned with a gain at the end of the investment period; whereas with Government expenditure public resources are depleted as a result of the spending. Returned investment capital can then be recycled into additional beneficial projects.

In line with the ISIF’s double bottom line mandate, a key part of the ISIF’s due diligence in advance of investment is a comprehensive assessment of the additionality, displacement and deadweight of each transaction.

Post-investment, the ISIF completes a semi-annual census of all investees to collect economic impact and employment data to enable it to monitor the economic impact progress of all investments.

ISIF Regional Economic Impact 2017

Global Portfolio

In July 2016, the NTMA completed implementation of its medium-term Global Portfolio Transition Strategy (GPTS), which is designed to position the ISIF to transition from a largely global portfolio into an Irish portfolio as investment opportunities in Ireland are executed and drawn down over a period of years. The overall focus of the GPTS is to ensure that cash is available as required for Irish investments over an indicative period of four to five years, while making a significant contribution towards the ISIF’s overall investment return objective.

By design, the GPTS is a relatively low-risk multi-asset class and multi-strategy investment approach, investing across cash, fixed income, credit, equities, multi-strategy solutions and absolute return mandates through top quality external global asset managers.

The Global Portfolio’s total assets at end-2017 were €6.5bn, comprising quoted equities, bonds, cash and alternative assets.

Global Portfolio Assets at End-2017

Global Portfolio Managers at End-2017

*Legacy NPRF investments (14 managers).
Figures may not total due to rounding.

The ISIF’s custodian, BNY Mellon, provides custody and transaction services to the NTMA. BNY Mellon is responsible for transaction settlement and the segregated holding of the ISIF’s directly-owned public markets assets.

Sustainability and Responsible Investment

The NTMA, as controller and manager of the ISIF believes that the Fund, as a large and long-term investor in Ireland, has a duty to actively contribute to the sustainability of the Irish economy for future generations and to encourage others to do the same. To this end, it has developed an ISIF Sustainability and Responsible Investment Strategy to protect and enhance both the value and the reputation of ISIF investments for the long term through responsible investment practices and environmental, social and governance (ESG) risk mitigation. Throughout its investment decision making processes, it aims to focus in particular on climate change risk and emissions and on governance issues.

During 2017, the ISIF appointed a number of service providers to assist in the implementation of its Sustainability and Responsible Investment Strategy.

ISIF Sustainability and Responsible Investment Service Providers

In December 2017, the ISIF published its revised Sustainability and Responsible Investment Strategy which allows for the exclusion of specific entities or categories of investment as a responsible investment tool on a limited basis. Such exclusions may be made where, having considered relevant, reliable and reasonable factual evidence, it has been reasonably concluded that investing in an entity or category of investment is not consistent with the NTMA’s statutory duties concerning investments of the Fund or with its investment strategy for the discretionary assets of the Fund. Under the revised Strategy, the ISIF has excluded companies materially involved in the production and processing of coal and oil sands, the highest carbon content fossil fuels, and has re-iterated its investment decision, made in 2016, to exclude tobacco manufacturing companies. This is in addition to the exclusion of companies involved in the manufacture of cluster munitions and anti-personnel mines, which are prohibited investments under the Cluster Munitions and Anti-Personnel Mines Act 2008.

DIRECTED PORTFOLIO

The Directed Portfolio – primarily public policy investments in AIB and Bank of Ireland – continues to be managed within the ISIF under direction from the Minister for Finance. During the financial crisis, a total of €20.7bn was invested by the NPRF in AIB and Bank of Ireland at the direction of the Minister for Finance for public policy reasons. These assets transferred to the ISIF on the establishment of the Fund.

The figures in this section relate to investments held by the ISIF only and do not include public policy investments in Irish financial institutions made by the Minister for Finance through the Exchequer. At end-2017, the Directed Portfolio comprised:

In June 2017, in conjunction with the initial public offering of AIB shares, the ISIF was directed to sell 780 million shares at a price of €4.40 per share, which resulted in a reduction of the ISIF’s percentage holding from 99.9% to 71.1%. €3,434m of proceeds was subsequently transferred to the Exchequer on foot of Ministerial Directions.

The Directed Portfolio had a valuation of €11.8bn at end-2017. Its return in 2017 was 19.9%. Arising from the €20.7bn invested in AIB and Bank of Ireland, cash returns on investments to date have amounted to €10.1bn while investment valuations in AIB and Bank of Ireland at end-2017 were €11.5bn, bringing the total amount (income and value) to €21.6bn.

Directed Portfolio at End-2017